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Fund managers caught on the wrong foot on Tata Motors

An employee writes on a register inside the Tata Motors car showroom in Ahmedabad An employee writes on a register inside the Tata Motors car showroom in Ahmedabad

Heavy selling of Tata Motors' shares in May due to concerns over Brexit has proved to be a wrong call on the part of domestic mutual fund managers. With looming uncertainties on the auto maker's earnings in the backdrop of Britain's referendum on the issue of exiting European Union (EU), fund managers sold Tata Motors' shares worth Rs 1,025 crore last month, data shows.

Interestingly, the month saw Tata Motors trade at sub-Rs 400 levels for majority of the sessions only to spike in the last two days as the company reported good Q4 numbers. In fact, Tata Motors was the most liquidated stock in fund managers' portfolios with selling of over 22 million shares. The stock lost its position among the top ten most owned stocks by fund managers and slipped one notch down.

However, what followed later was least expected as the share price kept galloping and hit a 52-week high of Rs 486 on Tuesday. This is an increase of nearly 23 per cent against the average closing price in the previous month.

"The Brexit development called for a review of our holdings in Tata Motors as the company gets a big chunk of its revenues from Jaguar Land Rover (JLR). Having said that, we took a conscious call and went ahead with a partial selling of our holdings instead of completely exiting the counter. At the end of the day, we are public money managers and can't afford to take undue risks - which may or may not come," said chief investment officer (CIO), who wished not to be named as the query was stock specific.

JLR reports its numbers in GBP and outcome of referendum on exit from EU is likely to deeply hurt GBP against US Dollar, which, in turn, may influence Tata Motors' earnings.

According to another top equity head, who is bullish on Tata Motors: "We had recently met the company and post that we, actually, increased our buying. I am not denying the fact that Brexit event may have a knee-jerk reaction on the company and its shares. However, we understand that the company is likely to do better on the commercial vehicles front and recent passenger car launches have been received well by the market."

Post Tata Motors' Q4 numbers, several of the brokerages' research reports increased the target with a buy call. CLSA put the target of Rs 545 and Prabhudas Lilladher gave a target of Rs 503. What is worth mentioning is the fact that many of the fund managers who turned sellers have brought Tata Motors back on their buying radar - an example of selling low and buying high; something against which fund managers keep educating investors about.

Some of the equity schemes which have exposure to Tata Motors include Equity Opportunities Fund, HDFC Top 200, Birla Sun Life Frontline Equity, Franklin India Bluechip, DSP BlackRock Focus 25 Fund, Axis Equity Fund and ICICI Prudential Select Large Cap, among others.

As on 31 May, about 1.43 per cent of the equity assets or Rs 4,931 crore found its way into stocks of Tata Motors with an overall holding size of 129 million shares in fund managers' portfolios.